What’s in store for India’s startups in 2024?

It’s been an eventful week for the startup funding space, with PocketFM securing $103 million, Avanse Financial Services’ $120 million fundraise, and Ultrahuman raising $35 million in a mix of equity and debt funding.?

Does this flurry of activity reflect the larger trends in the ecosystem?

Funding into India’s startups dipped to $9.6 billion in 2023 from $25.7 billion in 2022, shows a Bain & Company and Indian Venture and Alternate Capital Association Report. Growth and late-stage startups chose to defer fundraising last year, and the number of mega rounds (worth more than $100 million), and small and medium-sized deals fell significantly during the time period.

There are some greenshoots in investment activity, but it’s yet to go back all the way — and this will continue to be the dominant theme of 2024, according to Sai Deo , Partner at Bain & Company. While tech-focused startups claim a major share of overall deals, investors are increasingly eyeing traditional sectors, adds the report.

What sectors will be in focus? Offline retail, credit-focused banking, financial services, and insurance will attract more investor interest in 2024, according to the report. Generative AI and electric mobility also saw a boost in funding last year.

Indian startups are expected to raise around $8-12 billion in funding in 2024, according to Rajan Anandan , Managing Partner of Peak XV Partners, reports Business Standard. Trends like scaled startups that raised money in 2020 and 2021 returning to the fundraising scene, and the rise of revenue-based financing are also shaping the space.

“In 2024, startup investment trends will focus on sustainable growth models rather than fleeting trends,” says Pearl Agarwal , Founder at Eximius Ventures.

According to her, sectors such as fintech infrastructure, lending models, and AI-driven SaaS will see more funding activity due to their consistent performance, large user bases, ability to address evolving market demands effectively, and alignment with investors' expectations for reasonable growth.

For co-founder of Tremis Capital Pushkar Singh ,? deep tech, AI, clean tech, renewables, and mobility are the sectors to watch.

The outlook for India’s unicorn ecosystem — which has come a long way since its first unicorn in 2011 — also looks promising.?

The next phase of unicorn growth in the country could contribute $1 trillion to the economy, adding 50 million new jobs, and driving 15-20% GDP growth, according to a report by the Confederation of Indian Industry and McKinsey & Company.

However, the journey from startup to unicorn isn’t a smooth one.?

Challenges in scaling, including creating unique business models for the local market, being able to build profitable models, and extending their reach globally to tap into larger markets are on the horizon, according to Agarwal. Her three suggestions to overcome them? Prioritise innovation to tailor offerings to the diverse consumer needs in India, focus on building sustainable revenue streams, and develop strategic plans for international expansion.?

Richa Bajpai , founder and CEO at Campus Fund, says in their journey to becoming unicorns, startups should focus on building resilience, improving unit economics, agility, and building and retaining the right team. She adds that the next wave of unicorns will either operate global businesses, choose to go deeper into India, or build the tech of the future in frontier markets —? making the right set of investors with a strong belief in the vision and patience critical.

“For founders seeking funds across stages in 2024, it's important to maintain reasonable valuations, solid fundamentals, and employ first principles thinking,” adds Agarwal. She adds that startups should demonstrate proven revenue channels to attract investors in a changing funding landscape.

“To build a good startup, you should care about customers' problems. You should be a product-first company. If you are building a world-class product, revenue will come,” says Pushkar Singh , co-founder of Tremis Capital.

His advice to startups? “Be frugal with money. Even when venture capital is easy, frugality helps. As a founder, your first aim should be to quickly launch a PMF and acquire your first set of customers. Then through successive iterations, you should enhance and perfect the product.”

• Indian IT attracts global funds: More global private equity (PE) companies and PE-backed firms are showing interest in acquiring Indian IT and software companies, reports The Economic Times. Inbound deals from global investors betting on Indian firms jumped 35% year-on-year in 2023, according to GrowthPal data.
• India-based CXOs take the lead: India is becoming a base for more global tech leadership roles as international firms and GCCs expand operations in the country, reports The Economic Times. Companies like SAP, IBM, and Accenture are among those who have new and controlling positions based in the country, adds the report.
• More firms eye AI investment: Firms in Asia Pacific are looking to up their AI expenditure by 45% in 2024 compared the previous year, reports Financial Express, citing a Lenovo study. As many as 95% of CIOs in India are certain that AI will create a competitive advantage, and more than half of them consider it a game-changer.

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Reported by: Isha Chitnis

Community Manager: Raunak Ramteke